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This article provides a good example and reminder that when employees resign and enter into consulting agreements with their former employer, it is important to ensure that all restrictive covenants continue in effect, and that the consulting agreement contain an IP transfer agreement similar to the one contained in the employment agreement.
Two companies claimed to own patents and other rights in systems and devices for testing blood samples. The two companies competed directly with each other. Their claims stemmed from the actions of one employee (later a consultant). This employee had worked for company ‘A’ for 15 years. He then resigned and entered into an 18-month consulting agreement with the company. The consulting agreement continued several of the restrictive covenants of the employment contract, including confidentiality, non-solicitation and non-competition obligations. The non-competition covenants were to expire 18 months after the execution of the consulting agreement, which expired at the same time. Unlike the employment contract,the consulting agreement did not include any assignment of patents or ownership rights in IP developed during the term of the consulting agreement. A few months after the consulting agreement expired, the consultant filed patent claims, which he subsequently assigned to a company later acquired by company ‘B’, the other party to the lawsuit.
The court held that the consultant retained ownership in the IP developed over the time of his consulting services with the company, because he had not assigned it to them under the consulting agreement. Since the employment contract had expired, and the nature of the relationship between the parties had changed, the court declined to ‘read the employment contract terms into’ the consulting agreement.
Take away:
- When employees resign and enter into consulting agreements, it is important to ensure that all restrictive covenants continue in effect, and that the consulting agreement contain an IP transfer agreement similar to the one contained in the employment agreement.
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Rajah Lehal: Rajah is the Founder and CEO of clausehound.com. Rajah received his M.B.A. and J.D. degrees, from the University of Western Ontario Richard Ivey School of Business and the Faculty of Law respectively, during which time he was Co-President of Entrepreneurs@Ivey, a student-run entrepreneurship group and, as well, assisted Professor Richard McLaren with the launch of the Western Business Law Clinic. Rajah also received an Honours Philosophy degree from the University of Waterloo, where he also took a significant course load in Mathematics and Computer Science. Rajah worked for more than a decade in the information technology industry, including three years in software development and seven years as an Information Systems and Technology manager at both a major telecommunications company and at a financial services company. Rajah also received his legal training in the corporate law group at Stikeman Elliott LLP in Toronto, as well as internationally for the Technology Media and Telecom group in the Dubai office of Clyde & Co. Rajah is a Technology and Small Business Lawyer and is counsel for the Venture Law Practice Group at Cobalt Business Counsel, a corporate and securities law practice based in Toronto. Recently, Rajah has been interviewed for a Financial Post podcast and by the Globe and Mail for his work at Multiplicity, and has joined the Loan Review Committee Member for the CYBF Spin Master Innovation Fund and was asked to judge the Ivey IBK Business Plan Competition. Rajah is also on the board of directors of Sky’s the Limit charity that provides laptops to youths in need and is Canadian Responsible Leaders Chapter Head for the BMW Foundation. Rajah continues to be an active member in the start-up technology industry nationally and internationally.